Copper Sell-Off Deepens

The correction in copper prices continues as we head towards the weekend. Copper futures are now down more than 11% from the record highs seen just a week ago. The key driver behind the move has been the uptick in the US Dollar we’ve seen in response to a slew of hawkish Fed commentary. On the back of a softer April US CPI number, traders had begun pricing in a cut in September. However, with several Fed policymakers seen pushing back against this view, citing the need to hold rates steady, USD began recovering the post-CPI sell-off. The release of the latest FOMC minutes added to bullish USD sentiment with some members seen voicing support for further tightening if inflation doesn’t start to cool.

Fading Demand

Supply concerns have been another key supporting factor for copper prices recently. Rising demand out of China and still-subdued production levels on the back of the pandemic had created bullish conditions for the market. However, recent weak manufacturing readings out of China and an uptick in LME inventories suggests that demand is fading at the moment. While this narrative remains in place, copper prices look likely to correct further lower.  Overnight tonight, we’ll also get the latest China manufacturing PMI which holds the potential to drive copper lower still if fresh weakness is seen.

US Data Due

Looking ahead, focus will be on key US data today and tomorrow with prelim GDP and core PCE both due. If we see any fresh upside in USD on the back of these releases, copper prices should stay weak into next week.

Technical Views

Copper

The sell off in copper has seen the market reversing back under the 5.0370 level and now back below the 4.84 level. Price is now fast approaching a test of the 4.5785 level and bull trend line. This will be a key pivot area for the market with bulls needing to defend this area to prevent a much deeper move developing. 

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